Section 168
Section 168: advance pricing agreement
Section 168 allows the Board, with the Central Government's approval, to enter into an advance pricing agreement (APA) with a taxpayer, fixing in advance the arm's length price for an international transaction, or the income attributable to a non-resident's operations in India, for a defined future period.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
What an advance pricing agreement can cover
The Board, with Central Government approval, may enter into an agreement determining, or specifying the manner of determining:
- the arm's length price in relation to an international transaction to be entered into by that person, and
- the income referred to in Section 9(2), as is reasonably attributable to the operations carried out in India by or on behalf of a non-resident person.
Methods used
The manner of determination may include the methods referred to in Section 165(1) (for arm's length price) or the methods provided by rules made under the Act (for attributable income), with such adjustments or variations as necessary.
Irrespective of anything contained in Section 165 or 166, once an APA has been entered into, the arm's length price of the covered international transaction or the attributable income under Section 9(2) is determined strictly as per the agreement.
Validity, binding effect and roll-back
| Aspect | What Section 168 provides |
|---|---|
| Validity period | Not exceeding five consecutive tax years, as specified in the agreement |
| Binding on | The person in whose case, and in respect of the transaction to which, the agreement was entered into, and the Principal Commissioner/Commissioner and subordinate income-tax authorities |
| Not binding if | There is a change in law or facts having a bearing on the agreement |
| Roll-back ("rollback" years) | Subject to prescribed conditions, procedure and manner, the agreement may also cover the arm's length price or attributable income for up to four tax years preceding the first tax year the agreement otherwise covers |
Agreement void ab initio
The Board, with Central Government approval, may by order declare an agreement void ab initio if it finds the agreement was obtained by fraud or misrepresentation of facts.
Once an agreement is declared void ab initio, all provisions of the Act apply as if the agreement had never been entered into. The period from the date of the agreement to the date of the void-ab-initio order is excluded when computing any limitation period under the Act, and if the remaining limitation period after that exclusion is less than sixty days, it is extended to sixty days.
Applications and pending proceedings
Where a person applies to enter into an agreement, proceedings in that person's case are deemed pending for the purposes of the Act until the agreement is entered into, or the proceedings are closed, as may be prescribed.
The Board may prescribe a scheme specifying the manner, form, procedure and other matters for advance pricing agreements.
Frequently asked questions
What is an advance pricing agreement under Section 168?
An agreement the Board (with Central Government approval) enters into with a taxpayer, fixing in advance the arm's length price of a proposed international transaction, or the income attributable to a non-resident's Indian operations under Section 9(2).
How long can an APA last?
For such period not exceeding five consecutive tax years as specified in the agreement.
Can an APA also cover past years?
Yes - subject to prescribed conditions, procedure and manner, it may also determine the arm's length price or attributable income for up to four tax years preceding the first tax year covered by the agreement.
Can the tax department cancel an APA?
Yes - the Board, with Central Government approval, may declare an agreement void ab initio if it finds it was obtained by fraud or misrepresentation of facts, in which case the Act applies as if the agreement never existed.
Related sections
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Discuss an advance pricing agreement with our tax teamLast updated 9 September 2026